Insignia merges residential with AIMCO, spins off ESG

In a transaction valued at approximately $910 million, Greenville, S.C.-based Insignia Financial Group has entered into an agreement to merge its national residential property management operations and its 75% ownership interest in Insignia Properties Trust (IPT), Insignia's REIT subsidiary, with Denver-based Apartment Investment and Management Co.

AIMCO will assume approximately $460 million of Insignia liabilities, including $149.5 million of Trust Convertible Preferred Securities issued by Insignia Financing I, while Insignia shareholders will receive approximately $350 million in AIMCO preferred securities in this transaction. AIMCO also intends to offer a price no less than $100 million to acquire the 25% interest in IPT not owned by Insignia.

And to sharpen its focus on its commercial business, Insignia will spin off to its shareholders its commercial real estate operations, its single-family home brokerage operations and other select holdings as a separate public company, to be called Insignia/ESG, in connection with the AIMCO transaction and as part of its strategic plan implementation.

"The transactions announced today move Insignia to the next plateau in the implementation of its strategy," says Andrew L. Farkas, chairman, president and CEO of Insignia. "Clearly, we are delivering - in dramatic fashion - on our commitment to enhance shareholder value. The value created from this transaction, including the efficiencies and ongoing opportunities we will realize with AIMCO, creates a dynamic and exciting growth story for both Insignia and AIMCO shareholders."

Insignia Residential Group currently manages more than 280,000 units in its own portfolio and for third parties, and IPT owns general and limited partner interests in approximately 89,500 units. Upon closing of this transaction and its proposed merger with Ambassador Apartments Inc., AIMCO will be the largest manager of apartment communities in the United States, with approximately 245,000 owned units and an another 145,000 managed units in 48 states.

The spin-off of ESG is designed to be tax free to Insignia's shareholders, but the company will realize a significant one-time gain from the spin-off transaction, depending on the entity value at the time of the spin-off.

"The new Insignia/ESG will be focused on high-growth businesses in commercial real estate with strong demand for value-added services," Farkas says. "Insignia/ESG is expected to commence its independence as a debt-free company. This will fortify our ability to continue Insignia/ESG's strong growth through domestic and global acquisitions."

Farkas will become chairman of the board of the new Insignia/ESG, and Edward S. Gordon will retain his position as a member of the office of the chairman. Stephen B. Siegel will also remain as president and CEO.

Farkas, Executive Managing Director Frank Garrison, COO Ron Uretta and CFO James Aston will serve as consultants to AIMCO after the merger. These four, who have agreed to vote their shares in favor of the merger with AIMCO, have granted AIMCO an option to purchase their stock attributable to the residential operations being merged into AIMCO and agreed to certain restrictions on their ability to re-sell AIMCO securities issued to them in their merger.

Lehman Brothers acted as financial adviser to Insignia and has rendered a fairness opinion to Insignia's board of directors that the total consideration offered in the AIMCO and spin-off transactions is fair to Insignia shareholders from a financial point of view.